RBI relaxes norms for residential real estate

Mumbai: The Reserve Bank of India (RBI) has decided to relax norms for residential housing projects by lowering the standard asset provisioning requirement and risk weight for loans given to those projects. The move is aimed at boosting demand for this segment. With risk weight and provisioning requirement coming down, banks will now charge lower interest rates for such loans.

Earlier, residential housing projects were under the commercial real estate (CRE) category, which attracted higher risk weight and standard asset provisioning because the regulator considered it a sensitive sector. Now, RBI has decided to carve out a sub-sector within CRE as Residential Housing (CRE-RH).

CRE-RH would consist of loans to builders and developers for residential housing projects (except for captive consumption).

“As loans to residential housing projects under the commercial real estate sector exhibit lesser risk and volatility than the CRE sector taken as a whole, it has been decided to carve out a separate sub-sector called Commercial Real Estate-Residential Housing,” said RBI.

Loans to the new sub-sector will attract a risk weight of 75 per cent, compared to 100 per cent for CRE. Standard asset provisioning requirement will be 0.75 per cent, compared to 1 per cent in CRE. For individual housing loans, standard asset provisioning is 0.4 per cent, while risk weight is 50 per cent for loans up to Rs 75 lakh and 75 per cent above Rs 75 lakh.

“It's a very good move. Banks will be able to lend more money to developers. It will encourage supply and have cooling impact on prices,” said Rajeev Talwar, executive director, DLF.

RBI also said integrated housing projects comprising some commercial space (shopping complex, school, for example) can also be classified as CRE-RH, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total floor space index (FSI) of the project.

“In case the FSI of the commercial area in the predominantly residential housing complex exceeds the ceiling of 10 per cent, the project loans should be classified as CRE and not CRE-RH,” said RBI.

Some of the realty players, however, have demanded for opening of more sources of funding from RBI.

“It is too small a cut to make any impact. RBI should open other sources of funding,” said Ashish Raheja, managing director of Raheja Universal.